Home Real Estate Mortgage amortization 101 for first-time homebuyers

Mortgage amortization 101 for first-time homebuyers

by Ozva Admin

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Mortgage amortization describes where your monthly mortgage payment goes. For starters, it pays mostly interest. Over time, you pay more principal. (Shutterstock)

When you get a fixed-rate mortgage, you know your monthly payments will stay the same for as long as you have the loan. but as a first time home buyeryou may not know that the destination of those payments changes over time.

At the beginning of your home loan, most of your monthly payment goes toward paying interest. Eventually, you start paying more and more of the principal.

This is called mortgage amortization, and it’s an important concept to know if your goal is to be debt-free. Here’s how mortgage amortization works and how you can use this knowledge to your advantage.

credible help you compare mortgage rates from multiple lenders.

What is mortgage amortization?

Mortgage amortization is the process of paying off your mortgage. When you first take out a mortgage, you are given a fixed monthly payment. Part of this payment is used to pay the interest, or the money you pay mortgage lender in exchange for giving him the loan. Another part of the payment goes to the major, or the amount you actually borrowed. In most cases, part of your monthly payment also goes toward things like property taxes and sure

At the beginning of your loan term, most of your payment will go toward interest on the loan. This is because your loan balance is still high, so you owe a lot of interest. Only a small amount goes to capital.

But this gradually changes the longer you have the loan. As you pay down your principal, the amount of interest you must pay also decreases. At the end of your term, you will pay most of the principal and only a small amount will go towards interest.

What is a mortgage amortization schedule?

A mortgage amortization schedule is a graph or table that shows you how your payment changes over time. For each month of your loan term, you’ll see an entry that shows you how much of your mortgage payment will go toward principal and how much will go toward interest.

For a $200,000 loan repaid over 30 years at a 6% interest rate, your mortgage amortization schedule might follow this type of pattern:

Month 1 (first month)

  • Payment: $1,199.10
  • Equity: $199.10
  • Interest: $1,000
  • Ending balance: $199,801

Month 3 (third month)

  • Payment: $1,199.10
  • Equity: $201.10
  • Interest: $998
  • Ending balance: $199,400

Month 360 (last month)

  • Payment: $1,199.10
  • Equity: $1,193.13
  • Interest: $5.97
  • Ending balance: $0

When you close on your mortgage, you’ll likely receive a mortgage amortization schedule to review. That’s to make sure you understand how your mortgage payment works.


How is the amortization of a mortgage calculated?

Mortgage amortization is calculated using a fairly complicated formula that takes into account your loan balance, the length of the loan term, and your interest rate.

Luckily, you don’t have to do the math yourself. There are many mortgage amortization calculators available online that you can use to determine the breakdown of your payments. you can try east freddie mac to get started

With Credible, you can compare rates, Find out how much you can afford to pay for your home and generate a streamlined pre-approval letter in minutes.

What are the advantages and disadvantages of amortization?

Mortgage amortization has advantages and disadvantages.



  • You build equity slowly. At the beginning of your loan, you are paying very little principal. This means that you are only slowly increasing the equity in your home.
  • It can be difficult to understand. While amortization is math, it’s complicated math. Doing the calculations yourself is out of reach for most people.
  • You pay a lot of interest. Over the course of a 30-year mortgage, you can pay hundreds of thousands of dollars in interest. Your interest payments at the beginning of the mortgage are particularly high due to the large remaining balance.


Should you pay off your mortgage faster?

If you can pay off your mortgage faster, that’s often a great idea. The faster you can pay off your loan, the less interest you’ll ultimately pay. Consider some of these strategies to save money and get out of debt faster:

  • Make extra payments. When you make extra payments on your loan, the extra amount is usually applied directly to your principal balance. This reduces the amount you’ll pay in general interest, often by a significant amount. You may be able to save tens of thousands of dollars on your mortgage by making even small extra payments each month or year.
  • Make biweekly payments. Instead of making a monthly payment, you can consider paying your mortgage every two weeks. This can be better aligned with your paycheck and over the course of the year you will have made the equivalent of 13 monthly payments. That extra month can go toward your principal.
  • Refinance to a shorter term. The shorter your mortgage, the less interest you’ll pay in the long run, even though your monthly payments will be higher. If your budget allows, consider refinancing a 30-year mortgage to a 15- or 10-year loan to lower the amount you’ll ultimately pay. You may also qualify for a lower interest rate.

When you’re ready to apply for a mortgage, you can use Credible to compare rates from multiple lenders.

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